Welcome to Deal of the Week — where we run a real listing through Freehold Acquire's institutional-grade underwriting engine and publish the full analysis. No cherry-picking. No spin. Just the math.
This week: an 8-unit multifamily in Austin's East Riverside corridor, listed at $1,450,000.
The Property at a Glance
| Metric | Value | |--------|-------| | Address | 1205 Montopolis Dr, Austin, TX | | Units | 8 (mix: 4x 2BR/1BA, 4x 1BR/1BA) | | Year Built | 2001 | | List Price | $1,450,000 | | Price Per Unit | $181,250 | | Current Gross Rent | $12,600/mo | | Occupancy | 87.5% (1 vacant unit) |
The unit mix is evenly split between one-bedrooms at $1,350/mo and two-bedrooms at $1,800/mo. One 1BR unit is currently vacant — has been for about 45 days at the $1,350 ask. That's a data point worth paying attention to.
The Numbers: Income & Expenses
Current Income
The rent roll shows $12,600/month gross when fully occupied, or $151,200 annually. With the current vacancy (one unit empty) and a 7% vacancy reserve going forward (reflecting Austin's rising vacancy rates in 2025–2026), effective gross income is $140,616.
Why 7% instead of the standard 5%? Austin has seen significant new multifamily supply come online since 2023. The metro delivered over 28,000 new apartment units in 2024 and another 22,000 are projected for 2025–2026. East Riverside, specifically, has seen a wave of new Class A product that puts pressure on older Class B inventory. Vacancy rates for small multifamily in this submarket have ticked up from 4.2% in 2022 to an estimated 6.8% in early 2026.
Operating Expenses
| Expense | Monthly | Annual | % of Gross | |---------|---------|--------|------------| | Property Tax | $2,100 | $25,200 | 16.7% | | Insurance | $720 | $8,640 | 5.7% | | Management (8%) | $1,008 | $12,096 | 8.0% | | Maintenance & Repairs | $850 | $10,200 | 6.7% | | CapEx Reserve | $400 | $4,800 | 3.2% | | Utilities (common area) | $320 | $3,840 | 2.5% | | Landscaping | $200 | $2,400 | 1.6% | | Admin & Legal | $150 | $1,800 | 1.2% | | Total Expenses | $5,748 | $68,976 | 45.6% |
Texas property taxes are the story here. At $25,200/year (16.7% of gross), they're the single largest expense line and nearly double what you'd see in most other states. This is structural — Texas has no state income tax but compensates with aggressive property assessments. Expect this number to climb if you improve the property or if the county reassesses post-sale.
Net Operating Income
- NOI: $71,640/year
- NOI Margin: 47.4%
That margin is below the 55% institutional benchmark. Property taxes are the primary drag — without them, the expense ratio would be a healthy 29%. This is simply the cost of doing business in Texas.
Debt Service & Cash Flow
Modeled at 75% LTV, 7.1% rate, 30-year term:
| Metric | Value | |--------|-------| | Down Payment | $362,500 (25%) | | Loan Amount | $1,087,500 | | Monthly Payment | $7,318 | | Annual Debt Service | $87,816 |
Cash Flow
- Annual NOI: $71,640
- Annual Debt Service: $87,816
- Annual Cash Flow: -$16,176
- DSCR: 0.82x
At current rents and a 7% vacancy reserve, this deal is cash-flow negative on a 75% LTV conventional loan. That's a problem.
But wait — let's look at this from a different financing angle. At 70% LTV ($1,015,000 loan), the monthly payment drops to $6,830, and annual debt service falls to $81,960. Cash flow improves to -$10,320. Still negative.
At 65% LTV ($942,500 loan), monthly payment is $6,342, annual debt service is $76,104, and cash flow turns positive at -$4,464. We're getting closer.
The reality: this deal needs either a lower purchase price or a larger down payment to work at current rates. At a $1,300,000 purchase price (10.3% below asking) with 25% down, the deal produces $2,928 in annual positive cash flow. That's the negotiation target.
Market Context: The Austin Supply Problem
Austin's multifamily market is in a supply correction. After years of explosive growth, the metro overbuilt relative to absorption:
- 2023 deliveries: 31,200 units
- 2024 deliveries: 28,400 units
- 2025 projected: 22,000 units
- 2026 projected: 14,000 units (permits have slowed sharply)
The good news: the supply wave is cresting. Permit filings have fallen 40% from the 2022 peak, and developers are pulling back. By 2027–2028, Austin's fundamentals should tighten considerably as population growth (still 150+ people/day net migration) absorbs the excess inventory.
The bad news: 2026 is still a soft market. Concessions are common on new Class A product (one month free is standard), which creates indirect pressure on Class B rents. The 45-day vacancy on the 1BR unit at this property may reflect this dynamic.
The Value-Add Angle
Unlike the Portland deal (where below-market rents were the primary thesis), this Austin property is closer to market rent. The opportunity here is different:
Rent Positioning
| Unit Type | Current Rent | Market Median | Gap | |-----------|-------------|---------------|-----| | 1BR/1BA | $1,350 | $1,420 | 5.2% | | 2BR/1BA | $1,800 | $1,850 | 2.8% |
The rent gap is modest — 3–5%. There's no dramatic below-market story here. Rent growth will be the driver, not rent correction.
Operational Improvements
The more compelling angle is expense optimization:
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Property tax protest: Texas allows annual property tax protests. Engaging a tax protest firm ($0 upfront, they take 30–40% of savings) could reduce the tax bill by $2,000–$4,000/year. On an 8-unit property, this is meaningful.
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Utility submetering: If tenants aren't currently paying their own utilities beyond common area, implementing RUBS (ratio utility billing system) could shift $200–$400/month in costs to tenants.
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Insurance shopping: At $8,640/year, the insurance premium may have room for a 10–15% reduction through competitive bidding. Texas insurance markets have stabilized after the 2023–2024 spike.
Combined, these operational improvements could add $6,000–$10,000 to annual NOI without any capital investment.
Sensitivity Analysis
Interest Rate Sensitivity
This deal is highly rate-sensitive. At current rents:
| Rate | Monthly Payment (75% LTV) | Annual Cash Flow | |------|---------------------------|-----------------| | 6.1% (-1%) | $6,593 | -$7,476 | | 7.1% (current) | $7,318 | -$16,176 | | 8.1% (+1%) | $8,070 | -$25,200 |
Every 100 basis points costs roughly $9,000 in annual cash flow. If rates come down (Fed projections suggest 50–75 bps of cuts through late 2026), this deal's economics improve materially. But you can't underwrite to rate cuts — that's speculation, not analysis.
Vacancy Sensitivity
| Vacancy Rate | Effective Gross Income | NOI | Cash Flow | |--------------|----------------------|-----|-----------| | 5% | $143,640 | $74,664 | -$13,152 | | 7% (modeled) | $140,616 | $71,640 | -$16,176 | | 10% | $136,080 | $67,104 | -$20,712 |
At 10% vacancy (losing almost one full unit year-round), the deal bleeds $20,712 annually. In Austin's current supply environment, 10% vacancy is not a tail-risk scenario — it's within the range of possibility for the next 12–18 months.
Rent Growth Projections
Austin's long-term rent growth has been exceptional (5.2% CAGR over the past decade), but near-term growth is compressed. Consensus estimates for Austin multifamily rent growth:
- 2026: 1.5–2.5%
- 2027: 3.0–4.0%
- 2028+: 4.0–5.0% (as supply normalizes)
At 2% annual rent growth, this property's NOI crosses the debt service threshold in approximately 18 months. At 3%, it takes 12 months. The deal is a bet on Austin's medium-term trajectory — and that bet has strong structural support, but it requires patience.
Freehold Score Breakdown: 71/100
| Sub-Score | Points | Out Of | |-----------|--------|--------| | Cash Flow Strength | 19 | 30 | | Market Positioning | 20 | 25 | | Risk Profile | 15 | 25 | | Growth Potential | 17 | 20 |
Cash Flow Strength (19/30): The deal is cash-flow negative at asking price and current rates. That's a significant penalty. The path to positive cash flow exists but requires either price negotiation, rate improvement, or operational optimization. The score reflects the potential more than the current state.
Market Positioning (20/25): East Riverside is a strong long-term submarket — major employers (Tesla, Samsung, Oracle), improving transit infrastructure, and demographic tailwinds. The 2001 vintage is solid (no major deferred maintenance concerns). Docked for the current supply overhang.
Risk Profile (15/25): High interest rate sensitivity, elevated vacancy risk from new supply, and Texas property tax exposure combine to create above-average risk. The deal has more downside scenarios than a stabilized property in a supply-constrained market.
Growth Potential (17/20): Austin's population growth, employment base, and long-term rent trajectory are among the strongest in the country. The supply correction is temporary; the demand drivers are structural. High marks for medium-to-long-term growth potential.
The Verdict
This is a market-cycle deal. You're buying into Austin's temporary softness with a thesis that the structural demand drivers will reassert themselves as supply normalizes in 2027–2028.
The math doesn't work at asking price with current rates. Your target is $1,280,000–$1,320,000 — which gets the deal to breakeven cash flow at 75% LTV and gives you margin for the vacancy and rate risks that Austin's current market presents.
If you can negotiate to that range, you're buying a solid 2001-vintage 8-unit in one of America's strongest long-term rental markets at a 10% discount to asking. If the seller won't move, walk — there's plenty of inventory in Austin right now, and that's exactly the kind of leverage buyers haven't had in this market for five years.
Freehold Score: 71/100 — Conditional Buy. Needs price negotiation to work.
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